Chapter 21
Harnessing Your Computer’s Power
In This Chapter
Finding your way around mutual funds with software
Locating the best mutual fund Web sites
When you invest your money, especially in mutual funds, having a computer at your disposal to make wise investing decisions and to manage your portfolio is not necessary nor is it advantageous. In fact, the use of a computer when investing may prove detrimental to your investing success. Why?
My experience with counseling clients, reading letters and e-mails from readers and visitors to my Web site, and instructing students in my courses is that heavy computer users tend to focus too much on daily price changes and the short-term news and, thus, they trade too much — losing sight of the important bigger-picture issues. So if you’re not online yet or don’t own a computer to play around with investing software or Internet sites, don’t be sad. If you decide to spend money on a computer or you already own one but don’t know how it can help you invest in funds, this chapter assists you with finding out how to put it to work.
I divide this chapter into two parts — software and Web sites. Some of the stuff I discuss does some of both categories. Those that do are generally placed in the category that they do more of.
Using Computer Software
Most software reviewers can agree that good software must be easy to use. Software that helps you make mutual fund and other investing decisions must also provide well-founded advice and information. Not all of it does.
Knowing which software is best for you depends on your goals and level of investment expertise. The financial software in the marketplace today can help you with a variety of activities that range from simply tabulating your mutual fund’s values and getting current prices to researching investment choices. You can even execute fund trades on your computer.
As I discuss later in this chapter (see the section, “Entering Cyberspace: Internet Sites”), thanks to technological advances, Web sites are offering features that were once the exclusive domain of software programs. Before you rush out to purchase a specific software program to accomplish a certain task, check to see what the Internet has to offer in that area.
Getting-and-staying-organized software
Checkbook software programs, such as Quicken, help with checkbook accounting, expense tracking, and bill paying. But checkbook software is also useful for keeping track of your mutual fund investments. By remembering your original purchase price, as well as factoring in dividend and capital gains distributions, checkbook software automatically calculates your current rate of return, both annualized and cumulative, for each individual fund, as well as for your entire portfolio.
However — and this is a big however — in order for software to keep track of your returns, you must plug in all your transactions, distributions, and share price changes when you receive your account statements. If you have a lot of funds at different accounts, this process could be tedious, depending on how much you like detail work. Some (primarily) larger investment companies allow you to download your account statement details directly into your software program. But even this procedure usually requires you to work with the downloaded transactions and assign them to appropriate categories.
Software can be useful if you have accounts at numerous investment firms and want to keep tabs on your various accounts and overall performance. But remember that consolidating your investments at a larger mutual fund company or through a discount brokerage account can accomplish the same goals for you — without your having to invest hours in studying software and entering data.
Also keep in mind that one of the most attractive features of checkbook software — its ability to track your cost basis — is irrelevant for funds held in retirement accounts. (See Chapter 18 for more information on cost basis as used for tax purposes.) Most mutual fund companies in this day and age track your cost basis for you, too.
Accessing investment research software
Investment research software packages usually separate investment beginners (and others who don’t want to spend a lot of time managing their money) from those who enjoy wallowing in data and conducting primary research. The best reason to use research software is to access quality information in a way that may be more cost-effective than doing so through traditional channels. Research software may allow you to peruse more information more efficiently.
Although these packages can be cost-effective, they’re still expensive. Don’t jump in to one of these programs until you’ve done a careful comparison between the information it offers and the data you need. Most investment software packages offer more raw data than you can ever use.
Mutual fund data hounds delight in the software products that Morningstar offers. However, if you’re an investing and mutual fund novice, don’t expect an easy time working with these sometimes jargon-laden and costly packages. Also expect to invest several hours of your time to figure out how to work with a program. (Morningstar offers more affordable and scaled-down information through its Web site, which I discuss later in this chapter.) Here’s my take on Morningstar’s mutual fund software:
Principia Mutual Funds: This software provides most of the data that’s provided on Morningstar’s fund reports, which I discuss in Chapter 20. You can search and screen for funds that meet the specific criteria that you enter into the program. The program also comes with a feature called the Portfolio Developer, which allows you to gather a portfolio of funds and then view a pie chart of that particular portfolio’s asset allocation. A subscription is $675 a year. Call (877) 586-5405 for more info.
Principia Mutual Funds Advanced: The ultimate for the mutual fund data junkie, its interface is similar to Principia Mutual Funds’, but you get more historical data and features. All the data available on Morningstar’s reports comes with this program, and then some. For example, each fund has an archive of all the analyst’s reviews of that fund. The program also lets you print these reports on your own printer. The Portfolio Developer allows you to track the performance of your mutual fund portfolio over time. The price for Morningstar’s first-class ticket is steep: An annual subscription is $1,220. Call (877) 586-5405 for more information.
Before plunging in to the data jungle, be honest about your reasons for doing research. Some investors fool themselves into believing that their research will help them beat the markets. As I say many times in this book, though, few of even the so-called professional investors ever beat the markets.
Entering Cyberspace: Internet Sites
The Internet is a vast network of computers all over the world that share information. Just about anyone can plug in to the Internet right from home — all you need is a personal computer and a connection. Fund investors online have some of the following possible benefits:
Quick access to info: The Internet can give you faster access to important resources than traditional channels allow. Before the Internet, investors had only one way to get their hands on, say, a fund prospectus: Call the folks at the fund company, give them an address, and wait up to a week for the mailman to deliver the goods. With Internet access, you can log on to the fund company’s Web site and view the prospectus immediately, and even print it, if you want to. The same goes for annual reports, account applications, research reports, account statements, and so on.
Interactive features: The best Internet sites are similar to software programs in that they’re interactive. The phenomenon of retirement-planning calculators is a good example. The best online calculators ask you questions, you plug in the answers, and on your computer screen you see your personalized plan calculated for you, complete with graphs and charts — sure beats slugging it out with a calculator and pencil over a fill-in-the-blank retirement-planning workbook.
Up-to-date info: Information on the Internet can be kept up-to-date, even up-to-the-minute. Larger companies have entire staffs that are responsible for keeping their Web sites current. If a prospectus is revised or a new tax law affects a retirement-planning calculation, a well-maintained Web site can reflect these changes the next time you log on. This advantage is one over the traditional print medium and software programs.
Of course, every coin has a flip side. The Internet has introduced plenty of hazards for mutual fund investors to be concerned about, but here, to steer clear of the pitfalls, I give you a few tips:
Free information, at a price: After you’ve paid your toll to get on the Information Superhighway, many things that you find there have the illusion of being free. Don’t be fooled. Somebody has to pay to put that info on the Internet, and nine times out of ten it’s a company that’s trying to sell you stuff that you’re better off not buying. Before you trust a Web site with information on mutual funds, find out who’s paying the bucks for the site to be there. (See the sidebar, “Who’s footing the bill?”)
Minutia to fixate on: An advantage of the Internet — its capability to keep information up-to-date — is also its Achilles’ heel. Too many Internet sites get so focused on the short term that they lose sight of the big picture. For example, many Web sites center on up-to-the-minute investment price quotes and late-breaking financial news: This type of information doesn’t serve a healthy, long-term investment strategy perspective. Don’t let the Internet distract you from your focus on the investment horizon. Don’t be as enamored with the Internet’s up-to-the-minute update ability as most Web sites seem to be.
Too many “experts”: Message boards and chat rooms are a unique aspect of the Internet. The way that these mediums can facilitate communication between people in various towns, cities, and states is potentially exciting. But message boards and chat rooms are dangerous places to tread for the naive and too trustful. Remember, you don’t have to take an entrance exam or have a license requirement for joining a chat room or posting a message on an electronic bulletin board. The anonymity makes pretending to be someone you’re not easy. Therefore, participate cautiously. Never trust any advice you get from a chat room or message board without verifying it through a reliable independent source. And never share confidential personal or financial details online.
Information overload: The possibilities on the Internet are so endless that they can be overwhelming, and the easiest way to find bad advice is to be unsure about what you’re looking for in the first place. Knowing what information you want before you start searching pays. If you enter a vague term into an Internet search engine — say, “mutual funds” — you’ll probably end up more lost than you were to begin with. If, on the other hand, you enter a specific term — such as TIAA-CREF mutual funds — you’ll probably find the information you’re looking for.
That said, let me speed up your search for good resources on the Internet by recommending what I think are the best mutual fund Web sites out there. You’ll recognize some of the names behind these sites because they’re companies I recommend throughout the book. Not surprisingly, the organizations that demonstrate excellence offline seem to be the ones that do best online as well.
Investment Company Institute
The Investment Company Institute (ICI) is the investment companies’ trade association; it includes mostly mutual funds but also closed-end funds, exchange-traded funds (ETFs), and unit investment trusts (UITs). This site has a wealth of industry data that’s of greater use to financial professionals who enjoy wallowing around such numbers. Check it out online at www.ici.org.
Be forewarned, however, that the educational materials on this site won’t show you to avoid load funds or other high-cost investments, such as most UITs — some ICI members sell them, so telling you to avoid these investments would be self-detrimental.
Morningstar.com
Morningstar’s site (www.morningstar.com) is one of the better mutual fund Web resources. You find Morningstar’s well-known research reports on individual funds, which feature long-term performance data and graphs, risk ratings, manager profiles, information on fees, and a list of discount brokers who sell the fund. Surprisingly, considering that Morningstar was built on the basis of research and no advertising, the mutual fund companies with their banner advertisements at the top of every page pay for this Web site.
The site also features articles on advanced concepts of fund investing and developments in the fund industry. For $179 per year, a premium membership gives you online access to more fund information and tools.
T. Rowe Price
On this site (www.troweprice.com), you can find some of the best retirement-planning tools available — for individuals saving for retirement, as well as for those already in or near retirement. Interactive worksheets can help you determine which type of IRA may be best for you to invest through.
This site also has a good selection of articles on various fund-investing topics as well as interviews with leading fund managers at the company. Should you invest in any of T. Rowe Price’s solid mutual funds, the Web site provides convenient access to your account information.
Securities and Exchange Commission
Although the government’s Securities and Exchange Commission (SEC) Web site is far from being the most user-friendly one, it contains a truckload of the required documents that all funds must file with this agency, whose purpose is to oversee the investment industry. The EDGAR database enables you to access documents that mutual funds have filed with the SEC at www.sec.gov/edgar/searchedgar/webusers.htm.
To look at a particular fund’s documents on file with the SEC, simply choose the general-purpose search option for companies and other filers. The site then provides a few different ways to search, but the easiest is to enter as much of the fund’s name as possible — don’t use abbreviations or acronyms — in the company-name search box. If the fund name you provide is associated with more than one particular fund (for example, if you simply type Vanguard), a list of choices appears from which you can choose. After you narrow it down to the particular fund you’re looking for, you get a laundry list of all the documents that the fund has filed with the SEC in recent years. (The most recent filings will be at the top of the screen.)
Vanguard.com
Among the fund company Web sites that I’ve examined, Vanguard’s (www.vanguard.com) is unsurpassed. In addition to housing an extensive online library of brochures on important fund-investing topics, this site also boasts numerous planning tools. For example, you can calculate how much to save for retirement or determine whether to convert your regular IRA into a Roth IRA.
Vanguard’s Web site also enables you, if you so desire, to track and manage your investments in one central location. You can buy and sell mutual funds from hundreds of fund companies, stocks, bonds, and many more investments all in one account.